Midea's interest in Kuka a sign of 'forthcoming wave' of Chinese acquisitions of western companies, says expert

According to recent media reports home appliance maker Midea has bid more than $5 billion in an attempted takeover of Kuka. Midea's bid values Kuka shares at nearly 60% higher than the current price. Midea already owns a minority stake in the German business.

Munich-based expert in corporate law and technology M&A Eike Fietz of Pinsent Masons, the law firm behind Out-Law.com, said the prospective deal showed the growing interest Chinese businesses are showing in acquiring companies elsewhere in the world.

"Outbound investment coming from China into the west is already much higher this year than it was last year, and last year also saw record investments too," Fietz said. "An M&A wave from China is clearly coming, the swell is building up."

"The proposed Midea/Kuka deal is a significant transaction as Kuka is a large well-known company in Germany. However, it is not immediately obvious what the fit would be between Midea, which makes everyday electrical appliances, and a manufacturer of high-tech robots that aid automation of production. As a result many commentators in Germany are unsure how to react to the deal. It is likely that the Chinese executives of Midea have identified potential synergies between the companies but just have yet to make their plans public," he said.

Fietz said that the increased interest Chinese companies are showing in buying foreign companies can be linked to the Chinese government's 'Made in China 2025' strategy, outlined last year.

"The strategy called for an uplift in the technical capabilities and volume of Chinese production," Fietz said. "In the past Chinese manufacturing has relied heavily on western know-how and the Chinese government has set out to change that through enhancing the skills and technology within China. Mergers and acquisitions with foreign businesses provide a means for Chinese businesses to realise improvements that the Chinese government is looking for."

"Chinese investors are particularly interested in businesses in Germany and to some extent in the UK, too, as 'Made in China 2025' is inspired by Industry 4.0 and the internet of things," Fietz said. "Given the cultural differences with China, western sellers would need to ensure that they can handle the specific difficulties of such transactions. A mark-up such as the one for Kuka can make it worth their while, though."

Competition law expert Michael Reich of Pinsent Masons said the proposed deal between Midea and Kuka would likely require notification to and scrutiny by the European Commission under EU merger control rules.

Fietz also said that because Kuka is likely to hold valuable data about industrial manufacturing in Germany, the proposed takeover of the company by Midea might also be scrutinised by the German government on public security grounds.